BellSouth, IBM rethink Web hosting service opportunities

In a move that could signal some significant changes in the Web hosting market, BellSouth last week agreed to combine its hosting services with IBM’s to create a single offering that includes voice and data transport.

Under the deal, BellSouth will essentially turn its fledgling Web hosting services to IBM, which will assume responsibility for the customers served by BellSouth’s e-business services centers in Atlanta and Miami.  The e-business Centers, which were opened just over two years ago, will be connected to IBM’s global hosting network and will act as hubs for IBM’s on-demand service offerings in the southeast U.S. BellSouth will provide the network services for the centers.

In addition, the two companies agreed to jointly market IBM’s e-business hosting services, as well as IBM’s on-demand services, in the southeast region. The companies are also exploring the possibility of jointly developing on-demand network services, including storage, voice, broadband, and wireless services.

The deal is a good one for BellSouth, which had invested heavily in Web hosting infrastructure, only to find that its facilities were largely unused by its relatively small base of hosting customers. With the hosting market slowing to a crawl, BellSouth could not justify expanding its hosting infrastructure, yet its existing facilities were costly to maintain.

IBM, on the other hand, has a large and growing base of hosting customers, and its on-demand computing technology enables it to operate hosting services cost-efficiently across a range of networked systems. IBM also offers a range of hosting services that BellSouth doesn’t, including on-demand storage, Linux and e-mail services. Those capabilities will now be offered to BellSouth customers.

IBM officials say they already are working on similar deals with other telecommunications service providers, many of which also invested heavily in the hosting market and are now losing money due to poor demand. The fact is that even deep-pocketed telecom carriers cannot build and operate hosting facilities as efficiently as IBM, which already has a huge computing infrastructure and a better cost model that enables it to offer a wider range of hosting services at a lower price than most telecom providers can afford.

The BellSouth-IBM deal signals another disappointment for telecommunications service providers, which have tried for years to expand into the computing and information services markets but have made very little money in the attempt. By handing its hosting customers over to IBM, BellSouth once again proves that telecommunications providers can best serve themselves by doing what they do best – delivering network transport services.

And there are opportunities for leveraging network services in the hosting environment. Clearly, IBM is not in a position to provide the bandwidth required for large hosting engagements, and therefore will rely on service providers to deliver the network infrastructure piece of the puzzle. That’s why IBM officials are seeking to negotiate additional pacts with other service providers – IBM will need network services from many different carriers to provide global hosting services.

The potential of joint product development also presents some intriguing possibilities for IBM and the telecommunications service providers. If Big Blue could extend its on-demand computing capabilities to the network infrastructure, it might bring a whole new dimension to the utility computing model.

For the short term, the IBM-BellSouth pact suggests that telcos are ready to get out of the hosting market. But over the long term, the partnership could signal the development of a wider range of services – and a return to core business – for both the telecommunications providers and IBM.